Stock slide propelled McCormick's restructuring


For those savvy enough to buy shares in the locally based spice company in the late 1980s, McCormick & Co. stock seemed like a lottery ticket with lucky numbers. Investors watched their holdings double despite an economic recession. Then double again. And it kept on rising.

Until January 1993, when the stock -- which had risen from about $6 in early 1989 to more than $30 -- began a 33 percent decline that helped spark Tuesday's announcement of a restructuring that will include the elimination of 600 jobs.

"We very clearly wanted to stress dissatisfaction" with the stock price, said Allen "Mac" Barrett, a spokesman for McCormick.

What sent the high-flying stock into a tailspin?

Analysts and investors interviewed yesterday said McCormick stock price has been dragged down by a general malaise in food industry stocks. Many consumer product companies saw stocks and profits suffer because of price wars to meet the demands of increasingly thrift-conscious consumers.

And, the investors said, McCormick's stock has suffered recently as everyone from company executives to mutual fund managers realized that the years of 15-percent-to-20-percent annual earnings growth could not be sustained indefinitely.

McCormick blamed some of its lower-than-expected earnings in 1993 -- profits were up about 12 percent last year -- on onion crop shortages that depressed results for its Gilroy Food subsidiary. But eventually, the company and investors realized that onions weren't the only reason to cry, said Kurt Funderburg, who watches McCormick stock for Ferris Baker Watts in Baltimore.

A deep-pocketed Australian company had bought McCormick's main competitor, Durkee French Foods, and recession-battered consumers weren't going to take any more price increases, he said.

"The competition was completely different" by mid-1993, he said.

VTC Mr. Funderburg still recommends McCormick stock for those who are long-term investors because earnings are expected to grow at a healthy rate of about 10 percent a year.

In early 1993, as McCormick reported record operating earnings and its stock price topped out, Mark Tavel, president of Rothschild Asset Management in New York, sold some of his portfolio's McCormick stock.

One reason: to start taking the profits his portfolio had accumulated from its decades-long investment in McCormick. But Mr. Tavel was also concerned that McCormick, which produces about 40 percent of all the spices sold in the United States, had grown as much as it could in its home territory. And overseas markets will take extra time and money to conquer, he believes.

As a part of its drive into overseas markets, the company has this year announced eight foreign acquisitions or joint ventures. Foreign revenues now account for more than one-third of sales.

Mr. Tavel, who still holds several hundred thousand shares of McCormick stock because of the company's strong management and brand name, said he was one of many investors who reduced holdings because "people realized the growth going forward couldn't match" the spectacular performance of the late 1980s and early 1990s.

Part of the problem, he said, is that the "company kept hopes alive [for rapid profit growth] longer than reality should have dictated."

The onion shortage hid a problem "with the core of their business. They were encountering slower demand," he said.

McCormick's stock closed down 25 cents in Nasdaq trading yesterday, finishing the day at $20.

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